Hong Kong's economy will drop to 5 percent this year and bounce back by 4.3 percent in 2021, HSBC Private Banking estimates.
Fan Cheuk-wan, chief market strategist for Asia at HSBC Private Banking, said Hong Kong’s pandemic control has achieved good results and the global travel restrictions are expected to be gradually lifted, which can help drive the retail sector and is expected to support a return to growth next year.
Although Hong Kong faces political uncertainty due to the national security law, Fan maintains a neutral view of Hong Kong stocks.
She said the index mostly reflects the profitability of listed companies, of which the current profits of Chinese companies account for about 55 percent of the HSI constituents.
As many companies are also benefiting from structural growth, she believes the stock market would not be hugely affected by the political uncertainty.
She expects the HSI to reach 28,080 points by the end of the year.
Fan said funds may have flowed into Hong Kong stocks in recent months due to the deterioration of Sino-US relations.
She also expects that 11 large Chinese stocks will list in Hong Kong in the next three years, which may significantly change the composition of the HSI.
The proportion of technology stocks will increase from the current 13 percent to 21percent.
Fan said the global economy will be rebooted gradually and achieve a U-shaped recovery in the second half of this year.
HSBC Private Banking predicts that the global economy would decline by 4.8 percent, while a recovery to 5.8 percent is expected next year.
The bank expects that the US economy will decline to 7 percent and China's economy will slow to 1.7 percent.
However, the bank believes that the two largest economies would recover to 6 percent and 7.5 percent growth, respectively, in 2021.